Principles of Macroeconomics

Homework Assignment 3

Multiple Multiple Choice

____ 1. 1 A competitive market is one in which

a.	there is only one seller, but there are many buyers.
b.	there are many sellers and each seller has the ability to set the price of his product.
c.	there are many sellers and they compete with one another in such a way that some sellers are always being forced out of the market.
d.	there are so many buyers and so many sellers that each has a negligible impact on the price of the product.

____ 2. 2 A likely example of complementary goods for most people would be

a.	hamburgers and hot dogs.	c.	hamburgers and French fries.
b.	lawnmowers and automobiles.	d.	Dr. Pepper and Pepsi.

____ 3. 3 A likely example of substitute goods for most people would be

a.	peanut butter and jelly.
b.	tennis balls and tennis rackets.
c.	CD players and CDs.
d.	pencils and pens.

____ 4. 4 During recession, many workers have been layoff and their income dropped. As a result, the demand for new cars will

a.	decrease and the demand curve shifts to the right.
b.	decrease and the demand curve shifts to the left.
c.	be uncertain. The demand curve shifts either to the right or to the left, but we cannot determine the direction of the shift from the given information.
d.	not change. People still buy new cars.

____ 5. 5 The law of demand says that

a.	an increase in price causes quantity demanded to increase.
b.	an increase in price causes quantity demanded to decrease.
c.	an increase in quantity demanded causes price to increase.
d.	an increase in quantity demanded causes price to decrease.

____ 6. 6 The line that relates the price of a good to the quantity demanded of that good is called the

a.	demand schedule, and it usually slopes upward.
b.	demand schedule, and it usually slopes downward.
c.	demand curve, and it usually slopes upward.
d.	demand curve, and it usually slopes downward.

Figure 4-1

____ 7. 7 Refer to Figure 4-1. The movement from point A to point B on the graph indicates

a.	as price increases from P2 to P1, quantity demanded increases from Q1 to Q2.
b.	as price decreases from P1 to P2, quantity demanded increases from Q1 to Q2.
c.	as price decreases from P1 to P2, quantity demanded decreases from Q2 to Q1.
d.	as price increases from P2 to P1, quantity demanded decreases from Q2 to Q1.

____ 8. 8 The market demand is

a.	the sum of all individual demands.
b.	the demand for every product in an industry.
c.	the average quantity demanded by individual demanders at each price.
d.	positively related to the price of the product in question.

____ 9. 9 Suppose the American Medical Association announces that men who shave their heads are less likely to die of heart failure. We could expect the current demand for

a.	hair gel to increase.
b.	razors to increase.
c.	combs to increase.
d.	None of the above is correct.

____ 10. 10 If a study by medical researchers found that brown sugar caused weight loss while white sugar caused weight gain we likely would see

a.	an increase in demand for brown sugar and a decrease in demand for white sugar.
b.	an increase in demand for brown sugar, but no change in the demand for white sugar.
c.	a decrease in the demand for white sugar, but no change in the demand for brown sugar.
d.	no change in either demand because weight loss is not a nonprice determinant of demand.

____ 11. 11 A decrease in the supply of televisions is represented by

a.	a leftward shift of the supply curve for televisions.
b.	a rightward shift of the supply curve for televisions.
c.	a flattening of the supply curve for televisions.
d.	a movement down and to the left along the supply curve for televisions.

____ 12. 12 If the number of sellers in a market increases, the

a.	demand in that market will increase.
b.	supply in that market will increase.
c.	supply in that market will decrease.
d.	demand in that market will decrease.

____ 13. 13 Suppose you make jewelry. If the price of gold falls, we would expect you to

a.	be willing and able to produce less jewelry than before at each possible price.
b.	be willing and able to produce more jewelry than before at each possible price.
c.	face a greater demand for your jewelry.
d.	face a weaker demand for your jewelry.

____ 14. 14 The price at which quantity supplied equals quantity demanded is called the

a.	coordinating price.
b.	monopoly price.
c.	equilibrium price.
d.	All of the above are correct.

Figure 4-7

____ 15. 15 Refer to Figure 4-7. Equilibrium price and quantity are, respectively,

a.	$35 and 200.
b.	$35 and 600.
c.	$25 and 400.
d.	$15 and 200.

____ 16. 16 Refer to Figure 4-7. At a price of $35,

a.	there would be a shortage of 400 units.
b.	there would be a surplus of 200 units.
c.	there would be a surplus of 400 units.
d.	there would be an excess supply of 200 units.

____ 17. 17 Refer to Figure 4-7. At a price of $15,

a.	there would be a shortage of 400 units.
b.	there would be a surplus of 400 units.
c.	there would be a shortage of 200 units.
d.	there would be an excess demand of 200 units.

____ 18. 18 Refer to Figure 4-7. At the equilibrium price,

a.	200 units would be supplied and demanded.
b.	400 units would be supplied and demanded.
c.	600 units would be supplied and demanded.
d.	600 units would be supplied, but only 200 would be demanded.

____ 19. 19 Refer to Figure 4-7. At a price of $35,

a.	a shortage would exist and the price would tend to fall from $35 to a lower price.
b.	a surplus would exist and the price would tend to rise from $35 to a higher price.
c.	a surplus would exist and the price would tend to fall from $35 to a lower price.
d.	an excess demand would exist and the price would tend to fall from $35 to a lower price.

____ 20. 20 Refer to Figure 4-7. At a price of $15,

a.	a shortage would exist and the price would tend to fall to a lower price.
b.	a shortage would exist and the price would tend to rise to a higher price.
c.	a surplus would exist and the price would tend to fall to a lower price.
d.	an excess demand would exist and the price would tend to fall to a lower price.